Attempt to structure around the Overseas Investment Act proves costly

A recent case (LINZ v Carbon Conscious New Zealand Limited and Katey LR Investments Limited [2016] NZHC 558) serves as a reminder of the wide application of the overseas investment regime and a warning against attempts to try and structure deals around it.

Carbon Conscious New Zealand Limited (CCNZ) needed to buy some land to meet its planting obligations for a carbon credits scheme. The land was sensitive under the Overseas Investment Act 2005; however CCNZ (a subsidiary of an Australian company) did not have the time it would have required to get consent – it needed to buy the land to start its planting in time to meet those obligations.

After taking advice an arrangement was entered into which involved a new company (Katey LR) being incorporated with the CCNZ general manager’s wife as the sole shareholder and director. That company bought the land and entered into some contractual arrangements with CCNZ which included giving CCNZ an option to buy the land.

These arrangements made the two companies associates under the Act, the result being that there was an acquisition of sensitive land by an associate of an overseas person without consent which is in breach of the Act. The High Court looked at a number of factors including the nature of the breach, the nature of any damage caused or gain made and whether the breach was intentional, inadvertent or negligent. The court ultimately ordered CCNZ to pay a penalty of $40,000 (after applying a 50% reduction for its admission of liability and co-operation) and $6,000 in costs.

New Zealand’s overseas investment regime is intentionally broad in its application. Any attempt to structure around it is unlikely to succeed, and carries with it the potential for significant penalties.

Image courtesy of Paul Bica.

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